Play Updates, Monday, 08/18/2008

In Play Updates and Reviews

by James Brown

Call Updates

Adobe Systems - ADBE - close: 44.10 chg: -1.01 stop: 41.50

The broad-based market weakness hit the tech-heavy NASDAQ for a 1.4% loss.
Shares of ADBE under performed the market after being downgraded this morning
before the bell. Shares ended the day off 2.2%. Today's decline has exceeded a
38.2% retracement of ADBE's August climb and shares closed under the rising
10-dma, which might be considered short-term bearish. We are not suggesting new
bullish positions at this time. More conservative traders may want to raise
their stop loss. Our target
is the $47.50-50.00 zone. The Point & Figure chart
is bullish with a $71 target.

We're not giving up on ILMN. The stock hit $95.00 on Friday and our first target
is $95.25. The stock displayed some volatility this morning and eventually
pulled back toward the $92 region before bouncing this afternoon. The rebound
this afternoon could be a new bullish entry point. Readers should note that
we're raising our stop loss to $88.45. Our second target is the $99.50 mark,
just below the top of its trendline of its rising channel and below
round-number, psychological resistance
at $100.00. FYI: ILMN has a 2-for-1 stock
split scheduled for September 23rd. Traders might also want to note that ILMN's
short interest is about 19% of the 50 million-share float. That's high enough to
spark some short squeezes.

ITRI spiked to a new three-month high at $105.99 this morning although if you
look at an intraday chart the move toward $106 looks like a bad tick. I don't
see it really trading over $105.25 this morning. Today's session was negative
with a 2.5% loss and what appears to be a potential bearish engulfing
candlestick pattern. I would look for a dip back toward the $101.00-100.00 zone
before considering new bullish positions. We've set two targets. Our first
target is $105.75. Our second
target is $109.90.

RIMM pulled back to the $125 level again and found additional support near the
50-dma. The technical momentum indicators are starting to struggle, which should
put traders on the defensive. We are adjusting our stop loss to $124.45 and
we're adjusting our secondary target to $134.75. RIMM has already exceeded our
first target at $129.00. We're not suggesting new positions at this time.

The widespread market weakness produced a little surge in the investor fear
gauge and the VIX rallied 7%. This indicator still has a bearish trend of lower
highs, which is actually bullish for the market. I still expect another market
sell-off that could push the VIX toward 30 and beyond. This is an aggressive bet
that the market will drop and the VIX will climb sharply before October option
expiration. Readers might want to wait for a new climb over 22.00 or 22.50
before initiating
new positions. Our target is $29.75 but readers might want to
consider scaling out of positions in the $28-29 region.

Put Updates

Bank of Amer. - BAC - cls: 29.30 change: -1.40 stop: 34.15

Financial stocks led the market lower on Monday. A Barron's article over the
weekend re-emphasized what many on Wall Street are worried about - that if the
U.S. government does have to step in to save FNM and FRE that it would wipe out
current shareholders. Shares of BAC reacted with a 4.5% decline and the two-day
pattern looks like a failed rally and the resumption of a new down trend in BAC.
This looks like a new entry point for puts if you're aiming for the $25 region.
More conservative
traders may want to consider a tighter stop in the
$32.50-31.50 zone. We have two targets. Our first target is $28.00. Our second
target is $25.50.

Strangle Updates

(What is a strangle? It's when a trader buys an out-of-the-money (OTM) call
and an OTM put on the same stock. The strategy is neutral. You do not care what
direction the stock moves as long as the move is big enough to make your
investment profitable.)

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Lehman Brothers - LEH - close: 15.03 chg: -1.14 stop: n/a

Weakness in the financials also hit the broker-dealer stocks. The XBD index lost
about 3%. Shares of LEH under performed their peers with a 7% decline. The MACD
on the daily chart is very close to a new sell signal. The stock definitely
looks poised to move lower. We have five weeks left before September options
expire and need to see LEH significantly above $24.00 or under $10.00. We're not
suggesting new positions at this time. The options we suggested were the
September $24.00 calls
(LYH-IR) and the September $10.00 puts (LYH-UB). Our
estimated cost is $2.15. We want to sell if either option hits $3.50 or higher.

Dropped Calls

None

Dropped Puts

Freddie Mac - FRE - close: 4.39 change: -1.46 stop: 8.15

Target exceeded. We can attribute a good portion of today's 25% drop in shares
of FRE to a Barron's article over the weekend. The stock was already weak and
vulnerable and Barron's merely reiterated what has already been said, that if
the government has to step in to save FRE current shareholders will probably be
wiped out. Our target on FRE was the $5.00 mark. Shares opened at $5.40 and
plunged to $4.36 intraday. The July 11th, 2008 low was $3.89, which is where we
would expect an
oversold bounce.